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Title: Tax gap reduction strategy in South Africa
Author: Mpinganjira, Peter F.
Awarding Body: University of Manchester
Current Institution: University of Manchester
Date of Award: 2008
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This dissertation presents the findings of a research study that has identified the main ways in which South African large companies in the manufacturing sector avoid taxes and measures the size of the tax gap. Specifically the study examines the motor vehicle manufacturers, automotive component manufacturers and packaging manufacturers. The study primarily deals with tax avoidance arising from transfer pricing manipulations among both foreign owned and South African owned Multinational Enterprises (MNEs). The literature review covered in the study includes; public value and strategic management in the public sector; measuring the tax gap; compliance risk management; tax avoidance; General Anti-avoidance Rules (GAARs); transfer pricing and competition for foreign direct investment (FDI). The study presents rich data collected from nine case studies for the period 1998 to 2005. The key findings for this period include; (i) The tax gap is estimated at 214% and 30% of the taxes declared and paid on a timely basis by the car manufacturing sector and the packaging manufacturing sector respectively. (ii) The estimated amount of money lost from the South African economy through manipulation of transfer prices is R39.565 billion (about £2.6 billion) with corporate income tax implications of R14.404 billion (£960 million). (iii) For every R1 of motor industry programme incentive given to three car manufacturers (excluding VAT refunds), the government has lost approximately R2 through transfer pricing. (iv) FDI appears to have taken more out of the South African economy than it had put in, Some analyses show that there is negative invested capital among the three car manufacturers. (v) Foreign-controlled multinational enterprises avoided more taxes than SA-controlled multinationals. The taxes avoided by foreign-controlled multinationals represented 4.56% of the company turnover between 1998 and 2005 while the taxes avoided by SA-controlled multinational enterprises were 0.69% of turnover. (vi) Statistically, in the car manufacturin'g sector, there is a strong positive correlation of 87% between the amount of taxes avoided and the amount of annual incentive bonuses approved by the parent companies for distribution among employees of the SA subsidiaries, including some senior management. In a regression analysis, the amount of taxes avoided explains 75% of the variability in the level of incentives bonuses. The study recommends that the SA Government should set up an 'Incentive Risk Management' committee. It calls for more contact and dialogue between the Commissioner of South African Revenue Service (SARS) and the CEOs of the car manufacturers and encourages the setting up of an Enforcement Centre of Excellence within SARS. It also provides suggestions on reducing the tax gap and recovering lost taxes while effectively managing the threat of disinvestment or capital flight.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available